Home' Trinidad and Tobago Guardian : January 8th 2015 Contents BG8 ENERGY
BUSINESS GUARDIAN www.guardian.co.tt JANUARY 2015 • WEEK TWO
Both former Finance
Minister Selby Wilson
and economist Ronald
Ramkissoon say the
not touch the Heritage
and Stabilisation Fund
and should, instead,
seek to cut back on expenditure as it deals
with revenue shortfall from falling oil and
natural gas prices.
Wilson said the Government needed to
"cut its cloth to suit the new reality" while
Dr Ramkissoon said the fund should be
treated "as strictly heritage and not touched."
Prime Minister Kamla Persad-Bissessar
is expected to address the issue of lower
energy prices and the further revisions to
the budget today. Crude prices have more
than halved in the last six months, falling
to their lowest levels since 2009 while LNG
prices that are indexed to crude prices have
also been sliding.
Ramkissoon said the challenge the country
is facing is one of expenditure and the kind
of spending that is occurring with a high
percentage of revenues being used to support
subsidies and transfers and social pro-
"The sovereign wealth fund should not
be touched and should be treated strictly
as heritage because other things can be done
to deal with the issue on the consumption
Wilson said the way the HSF is funded,
it is essentially a residual fund and the Gov-
ernment should have had targets of where
it wanted the fund to be and work towards
those targets. As it stands now, he said, the
fund at US$5.1 billion is still very small.
He said: "Philosophically I don t think
the fund should be touched at this time."
Both Ramkissoon and Wilson said the
country set itself up for this situation by
continuing to increase social spending even
though there were warnings this was not
sustainable over the long run.
"There should be no sacred cow---whether
it is wages and salaries, subsidies and trans-
fers--- but that is not to say that the indigent
and needy need not be taken care of. But
the social programmes need to be far more
targeted than they have been and, in that
way, you reduce the expenditure," said
He added: "We have all acknowledged
the inefficiency in some programmes. The
International Monetary Fund and Inter-
American Development Bank reports point
to areas of inefficiencies in several of these
programmes and it is possible to cut back
if the inefficiencies are removed. A good
example is if there is a reduction in the fuel
subsidy and an increase in fuel prices which
may have some effect but it will also reduce
the number of cars on the road and therefore
reduce the lack of productivity because of
traffic on the roads."
For Wilson, who had to manage the econ-
omy when crude prices were as low as US$9
a barrel, an oil price of US$50 a barrel is
not a crisis. He said this is still a significant
figure which a government can work with,
should it cut out all the excesses.
He complained that the State was not
collecting sufficient taxes particularly in the
form of the value added tax, which he said
had been corrupted by the number of
exemptions. Wilson said he would support
the idea of a revenue authority if it is going
to a more efficient revenue collection sys-
The former finance minister was, however,
clear that the more significant problem the
country was facing was one of widespread
Wilson said: "The real concern I have is
the extent to which there is social decay
and corruption. I think this is more a prob-
lem than to paint the US$50 a barrel for
crude oil as a crisis when we have decay
and rampant corruption at several levels of
the society and added to the crime. That
is far more difficult to reverse."
Ramkissoon said the Government should
be planning for a crude price of between
US$50 and US$60 for the next two years.
Admitting that it is difficult to predict crude
prices, the economist said the Government
also needed to tell the population the extent
of the problem in a candid and frank man-
He said there was a need for belt tight-
ening and both men agree that the nature
of the T&T economy does not allow for a
soft landing. They both agree that borrowing
and spending out of the crisis is not an
option because that was only likely to lead
to exchange rates outflow as most of the
country s consumption is based on imports
and that would lead to a rapid depletion of
the foreign exchange reserves.
Wilson also raised what he said was the
issue of an underground economy and said
this was also responsible for some of the
foreign exchange problems. He said casinos
should be closed down and the least gov-
ernment should do is to force them to oper-
ate under new laws.
"I have told this government and other
governments the same things and they don t
take me on," Wilson concluded.
The experts say...
Belt tightening for 2015
Govt must cut expenditure, increase tax revenues
The number of rigs drilling for oil in the United
States fell by 17 this week, as energy companies facing
lower crude prices reduced the rig count for the
fourth straight week, data from oil services firm Baker
Hughes showed on Monday.
The oil rig count dropped to 1,482 in the week to
January 2, its lowest level since March, the data
showed. The number of oil rigs has declined in nine
of the last 12 weeks since hitting a record high of
1,609 in mid-October.
The number of rigs remains up more than 100
from the same time last year, when there were 1,378
rigs seeking oil. But analysts said the trend is down,
with crude prices sliding nearly 55 per cent since the
In the prior week ended December 26, oil rigs
declined by 37, the biggest weekly drop in more than
The biggest losses continue to be in the Permian
Basin. For a second week in a row, drillers cut five
rigs there, bringing the total down to 522, the lowest
Despite the reduction in rigs, the Permian, located
in West Texas and New Mexico, is still the fastest
growing and largest US shale play for oil.
Analysts however have said drilling there is costlier
due to the geological complexity of the play, partic-
ularly compared with the Eagle Ford formation in
Less efficient vertical rigs declined by nine to a
total of 300, the lowest since at least 1991, after
falling 15 last week, according to the Baker Hughes
The horizontal rig count, most often used to extract
oil from shale rock, fell for a sixth week in a row,
down 14 this week, the biggest drop in 21 months,
to total 1,336, the lowest since September.
Horizontal rigs peaked at 1,372 in late November.
US oil and gas producers are scaling back capital
spending plans for 2015.
The number of US rigs drilling for natural gas,
meanwhile, fell by 12 this week to 328, the lowest
since October. Reuters
US oil and gas producers are slashing capital
spending plans for 2015, following a sharp decline
in oil prices over the past six months.
ConocoPhillips said in early December it would
cut its 2015 capital budget by 20 per cent, or
about US$3 billion (£2 billion) marking the biggest
spending cut by a US oil and gas company in
Global crude prices have more than halved
since June due to oversupply and OPEC s refusal
to cut its output ceiling.
Global benchmark Brent crude fell below US$51
for the first time since May 2009 on Tuesday.
While top US oil producers such as Chevron
Corp (CVX.N) are yet to announce 2015 capital
plans, many companies have already pared their
budgets. Some of them have already cut the num-
ber of drilling rigs they will deploy next year.
Global oil and gas exploration projects worth
more than US$150 billion are likely to be put on
hold in 2015 as plunging oil prices render them
uneconomic, according to data from Norwegian
consultancy Rystad Energy.
There are two companies that are still bullish,
however. Continental Resources Inc while slowing
spending, has exited all its hedges and told
investors oil prices will soon recover. Hess Corp
has boldly boosted its five-year production fore-
US oil drillers cut rigs
for 4th straight week
capex as crude dips
Links Archive January 7th 2015 January 9th 2015 Navigation Previous Page Next Page